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Institutional Determinants of International Equity Portfolios - A Country-Level Analysis

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  • Berkel Barbara

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    (MEA, Mannheim University)

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    Abstract

    Despite large potential gains, international equity investment is less diversified across countries than predicted by the international version of the traditional capital asset pricing model (ICAPM). This paper provides empirical evidence on the impact of capital market frictions on international equity portfolios using data on bilateral equity holdings. Two important findings are reported: First, besides a home bias in equities, a 'friendship bias' can be observed for some country pairs. Second, indirect barriers such as the degree of financial market development and especially information asymmetries have strong explanatory power, whereas direct barriers such as capital flow restrictions have no impact.

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    File URL: http://www.degruyter.com/view/j/bejm.2007.7.1/bejm.2007.7.1.1388/bejm.2007.7.1.1388.xml?format=INT
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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

    Volume (Year): 7 (2007)
    Issue (Month): 1 (October)
    Pages: 1-33

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    Handle: RePEc:bpj:bejmac:v:7:y:2007:i:1:n:34

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bejm

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    Cited by:
    1. Baltzer, Markus & Stolper, Oscar & Walter, Andreas, 2013. "Is local bias a cross-border phenomenon? Evidence from individual investors’ international asset allocation," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2823-2835.
    2. Vermeulen, Robert, 2013. "International diversification during the financial crisis: A blessing for equity investors?," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 104-123.
    3. Yohei Okawa & Eric van Wincoop, 2010. "Gravity in International Finance," Working Papers 072010, Hong Kong Institute for Monetary Research.
    4. Beugelsdijk, Sjoerd & Frijns, Bart, 2010. "A cultural explanation of the foreign bias in international asset allocation," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2121-2131, September.
    5. Carol C. Bertaut, 2008. "Assessing the potential for further foreign demand for U.S. assets: Has financing U.S. current account deficits made foreign investors overweight in U.S. securities?," International Finance Discussion Papers 950, Board of Governors of the Federal Reserve System (U.S.).

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